WHITE PAPER Taking procurement digital - …...thesmartcube.com WHITE PAPER A practical guide to implementing a digital-forward procurement strategy Taking procurement digital A key

thesmartcube.com

W H I T E P A P E R

A practical guide to implementing a digital-forward procurement strategy

Taking procurement digital

A key issue on many procurement executives’ minds is the much talked about concept of “digital procurement”. This white paper explores this concept in detail:

u What does digital really mean in the context of procurement?

u What value can it bring?

u How can I develop a digital-forward procurement strategy?

u Where is the market headed?

2 / thesmartcube.com

W H I T E P A P E R

Executive summary

One issue is at the forefront of the minds of many procurement executives today: the idea of “digital procurement”.

It’s a hot new buzzword and everyone at every conference is talking about it. There are promises – “digital procurement will transform your team and how you work with your stakeholders” – and there are threats – “digital will eliminate the procurement department in another 20 years”.

As with any new development, there is a lot of confusion around it, and certainly plenty of questions: What exactly is digital procurement? Why is it important? How do I take advantage of it? Will it require significant investment? Do I need a digital strategy? How do I embed it into my plans?

This white paper explores:

u What digital procurement is and how to think of it at different levels within your organisation

u The value that digital procurement can offer and the foundation elements of a strong digital-forward procurement strategy

u How to think about developing your digital-forward strategy, including key success factors and pitfalls

u The future of digital procurement, where the market is headed and what we can look forward to

Defining digital

There are multiple terms being used including digitisation, digitalisation, and digital transformation. They are commonly used interchangeably but it is important to both define and differentiate these terms:

u Digitisation is the conversion from analogue to digital. So we digitise data. We don’t digitise procurement

u Digitalisation is the application of digital technologies to transform and change a process or a model of some sort

u Digital transformation is where we transform a business to become deeply customer focused and valuable to them. It is more than simply a collection of digitalisation projects

In this white paper, the emphasis and advice is very much focused on digital transformation, which encompasses digitalisation, which in turn encompasses digitisation.

thesmartcube.com / 3

W H I T E P A P E R

What is digital procurement?

The consensus view is that it’s about applying digital technologies across the entire procurement function. From Strategic Sourcing (source to contract) – so that it is more total value focused and predictive, to Transactional Procurement (P2P) – making it more automated and efficient. And from category management – making it far more insight-driven and predictive, to supplier engagement – making it proactive versus the reactive approach that is still common today.

While the definition itself makes sense, its meaning can be extended:

First, true digital procurement is about digital transformation internally – the application of digital technologies should be about transforming the function to become far more internal customer focused, and not simply about finding bits and pieces of the department to digitalise.

In line with that, it’s all about creating a digital-forward procurement model. One where procurement organisations are focusing on more differentiating, value-adding activities and strategic decision-making, augmented by advanced technologies such as cognitive computing and predictive analytics.

Digital transformation can be a competitive advantage – improving insights, spend and how procurement interacts with and serves its stakeholders.

This transforms procurement into a vehicle that not only manages costs, but unleashes the potential of the supply base and market to significantly improve business performance.

Driving value through digital

Today, the application of digital technologies to procurement is already bringing a sea change in the impact it is delivering. These include:

u Faster and more efficient sourcing through e-tendering tools and related analytics

u Greater visibility and control through smart contracting

u Insights and informed decisions through better data visibility

u Improved operational efficiency through automated processes that increase speed and productivity

u Real-time spend management through machine learning and sophisticated algorithms

u Clearer, fact-based forecasting of demand using advanced analytics

According to Deloitte’s Global CPO Survey, in the near term, three technology areas are likely to have the biggest impact on procurement:

u Analytics

u The renewal of strategic procurement tools (such as sourcing and supplier management)

u The renewal of operational procurement tools (such as requisition and payment)


W H I T E P A P E R

Getting digital ready

The promise of digital procurement holds many obvious appeals. But many procurement organisations are still thinking: What does this mean for us? What are the foundational elements of a strong digital-forward procurement strategy?

Our experience suggests a mix of attributes and pre-requisites. Here’s a five point checklist that will help you get your procurement organisation ‘digital-ready’:

Depending on where you are along your journey, your answer may not be ‘yes’ to all of these, but the checklist can map out a path to get to ‘yes’ on all of them over time.

But you need to have senior stakeholder support from the start - you can’t move forward without it.

ChecklistAccess to data

Technology readiness

The right policies and processes

Senior level support

Access to analytical skills

u Do you have sufficient data available? u Is it relevant, structured and organised? u Is it easily accessible?

u Is your organisation open to the adoption of new technologies? u Is your team tech-savvy and quick to adopt new technologies? u Do you have the budget for technology investments?

u Do you have the right policies in place that will support your digital strategy? u Is there a clearly defined framework of roles and responsibilities? u Is there an opportunity to redefine the procurement operating model or processes

to accommodate the progressive digital agenda?

u Are your senior stakeholders truly pro-technology? Do they see it as more than a simple efficiency tool?

u Do you have adequate support from your senior stakeholders, including both the vision and inclination to prioritise and commit resources?

u Do you have access to the right talent and skills needed to operationalise your digital strategy?

u Do you have access to a cross-functional team of people with distinct skills such as knowledge of data science and AI, category/business expertise, IT professionals who understand the technology tools and software applications, design professionals, etc.?


W H I T E P A P E R

Challenge A large global pharmaceutical company, as part of its procurement transformation journey, had made significant technology investments in an e-sourcing platform but was struggling to drive adoption among relevant stakeholders. Most sourcing activities continued to be done through traditional offline methods resulting in inefficiency, redundancies, and negligible return on the technology investment.

Solution The company engaged The Smart Cube to relaunch the e-sourcing platform to the sourcing team and in turn enhance adoption. We provided end-to-end support across the source to contract process, including:

u Identification of suppliers to invite to an online sourcing events

u Creating standard RFx templates on the e-sourcing tool

u Running e-RFx events of varying complexities on the company’s behalf

u Training employees to build templates, run events and produce reports using the tool

u Ongoing support to the company’s suppliers during the bidding process (such as message boards)

u Analysing bids received through the tool, and developing rate cards and automated tools for bid analysis

Results By engaging The Smart Cube, the company was able to:

u Increase e-sourcing adoption to 90% within the first year of engagement

u Reduce time spent on administrative tasks (report generation time was cut from 2-4 hours, to 60 seconds)

u Standardise sourcing practices across sourcing teams

u Achieve operational efficiency by tracking supplier utilisation rate, with triggers generated for under/over utilisation

u Enhance transparency and communication between company and suppliers

u Better control of the tender process including an audit path for compliance purposes

Getting digital ready: Driving a digital-forward procurement agenda for a global pharmaceutical company

Case study


W H I T E P A P E R

Valued-based procurement strategy

Once you understand and answer those questions, you can then take the next step, which is to identify the right tools and technologies to implement this strategy. Needless to say, especially at the outset when you are making the case and looking for quick wins, these tools should be straightforward to adopt, user friendly, and easy to implement within the data environment of your organisation. This means applying a critical lens to questions such as:

u Which procurement objectives will these technologies address? u What do I need to implement this technology? u Is my organisation ready to adopt this technology? u What are the potential challenges and risks associated with these technologies?

Phased implementation

Tools and tech

Digital assessment

The starting point is to develop a strong overall procurement strategy – one that is customer-centric and focused on delivering the best total value to your stakeholders. This might mean the emphasis is on cost reduction, but just as much, it could mean the emphasis is on supply assurance, or quality assurance or risk reduction or innovation despite the cost.

Remember, a digital strategy is not an end unto itself. It’s a means to an end and that end ought to be what delivers the most value to your specific internal customers and hence to the corporation as a whole.

Once your digital needs are defined, you need to plan to implement the strategy in phases, evaluating success at regular intervals. The point here is simple: get things done, deliver quick wins, show results. Getting buy-in and fostering champions to help spread the word will make subsequent implementation steps (which are typically harder) run more smoothly.

The next step is to then embed “digital” into these strategies, which starts with answering a host of questions:

u Which of our objectives will digitisation help solve? u What degree of impact will digital bring to these outcomes? u Where will digitisation deliver the highest impact?

Understanding how digital plays in your space – what are best practices, what are current and emerging trends, which approaches are outdated – can support this assessment.

Making digital a strategy

Going from theory to practice leads to the question: How do you develop a successful digital strategy? At a high level, there are four specific steps you need to take.

1

3

2

4


W H I T E P A P E R

Challenge The procurement team of a leading Aerospace and Defence company had segmented its suppliers, to identify key strategic partners with whom it wanted to seek opportunities to drive value, whilst also managing and mitigating risk.

However, stakeholders lacked holistic visibility around supplier performance, opportunities to collaborate, progress on key initiatives, and financial and operational risk. This resulted in a disconnected approach to managing relationships, with procurement and business teams being tied up with tactical supplier management, delivering minimal returns.

Solution Working with The Smart Cube, the company deployed a customised digital solution to drive supplier visibility for all parties. This enabled them to collect relevant internal and external data, including from company ERP systems, online stakeholder surveys, questionnaires completed by strategic suppliers, and external market research from multiple sources.

This information was collated and presented through six dashboards on a web-based portal. Users access contextual, relevant insights and timely alerts against key criteria including contractual service level

performance, supplier financial metrics, supplier strategic developments, innovation and collaboration opportunities, and risk management.

Results The Smart Cube’s solution has enabled the company to move the dial from traditional supplier relationship management to more proactive and collaborative engagement, through:

u Holistic 360-degree visibility of its strategic suppliers, including all internal and external factors, for all stakeholders across the business

u Evidence-based, relevant intelligence to underpin decision making

u Predictive rather than simply descriptive intelligence on the supplier network, driving proactive strategies

u The ability to identify which suppliers provide most opportunity for joint initiatives

u Value from increased efficiency, more innovation, bigger savings and greater cost avoidance

u Intelligence on strategic supplier risk enables forward planning to avoid potential problems.

Tools and tech: How a leading Aerospace and Defence company used digital to unlock value from its strategic suppliers

Case study


W H I T E P A P E R

Make sure that there is visible and vocal support from top management down – this cannot be understated and is quite simply vital for success

Ensure that all digital strategies are focused on clearly generating business value, which can be defined in many different ways

Define clear roles and responsibilities and create new roles, if required – your existing team may need to be reinforced, updated or changed

At the same time, don’t hand the responsibility for digital change to a junior team member, no matter how tech-savvy. It’s not only about the technical know-how

Gauge the adoption appetite of your organisation before launching new technologies – what kind of cultural pushback can you expect? Change management is as important as the digital changes themselves

At the same time, be sure to push the organisation and your team harder than they are comfortable with; it’s at the edge of comfort and security that you will achieve real change

Take stock of what technologies already exist and assess if those can be utilised to meet the current defined strategy (new or state of the art is not always the best)

Start small and do it effectively rather than go for the (high risk) big bang

Key success factor check list

Implicit in all of this are several key success factors:

Checklist


W H I T E P A P E R

Challenge With more and more data being generated from multiple sources, the category management and buying teams at a global F&B giant were facing an increasing problem of sourcing reliable, relevant and timely insights. They found available information was conflicting and confusing, making it extremely time-consuming to distil valuable insight from noise and clutter. A high proportion of category managers’ time was going into non-core activities (information filtering etc.), leaving them less time for strategic activities such as developing negotiation strategies.

Solution The company partnered with The Smart Cube to develop a web-based platform, populated and updated regularly with relevant and reliable category information from multiple data sources.

The Smart Cube took a phased approach to implementing a solution customised to stakeholder requirements:

u Conducted workshops with category teams to understand their priorities, intelligence needs and current challenges

u Prepared a Proof of Concept to secure category teams’ buy-in and gather feedback before rolling out the complete solution

u Developed algorithms to integrate information from disparate sources on one platform, with a layer of human intelligence to ensure content is relevant at all times

u Created individual dashboards for over 30 categories providing insights into supply-demand dynamics, price trends and forecasts, supplier risk, innovations and opportunities and risks

Benefits Through the digital dashboard solution, accessible around the clock, anywhere in the world, through any device, the category teams are able to:

u Leverage a single source of strategic, actionable insights to inform decision-making

u Stay abreast of latest category developments and take appropriate actions

u Tap unearthed opportunities (e.g. low-cost suppliers, alternative sourcing destinations, substitute materials)

u Assist R&D teams with new product development

Phased implementation: How a global F&B business embedded digital category management

Case study


W H I T E P A P E R

Web Portal

Visualisation

Hot trends to watch

Predictive and advanced analytics

Blockchain

Cyber tracking

Robotic process automation

3D printing

Cognitive computing and AI

Transforms data into user-friendly, executive-friendly, visual formats that can simplify decision making by organising information and delivering fresh insights and recommendations

Will integrate statistics, modelling, machine learning, and artificial intelligence with third-party data sources to predict price fluctuations, demand levels, geopolitical risks, etc.

A developing area that is likely to change the way transactions, contracts and more are handled, verified and managed

Will enable real-time tracking of online and physical activity of key suppliers and their performance

An application governed by business logic and structured inputs that will automate many P2P activities, and improve efficiencies

Has the potential to eliminate stock-outs, carrying costs of low-volume items, but also allowing for rapid prototyping, which could help in direct sourcing

Applying pattern recognition software and iterative machine learning to help categorise spend and related data to find opportunities

Credit research

What does the digital future hold?

A Hackett Group study of 180 large company executives determined that nearly 85% of all procurement organisations believe that digital transformation will fundamentally change the way they deliver services over the next three to five years. The study found that the use of cloud-based applications, advanced analytics, robotic process automation (RPA), mobile computing and big data are also expected to grow dramatically.


W H I T E P A P E R

Driving digital forward As digital technologies continue to evolve and leading-edge capabilities such as AI become more accessible, the opportunities to enhance procurement’s performance and contribution to the business will surge.

A well-oiled and fully-functional digital-forward procurement strategy and operating model will allow executives to:

u Increase spend under management

u Dramatically improve compliance

u Accelerate savings

u Significantly reduce risk

For progressive CPOs across the globe, digital procurement should be a central feature of the growth and transformation agenda.

If you’d like to hear more from us we produce a regular podcast and video series which can be found on our blog or via any podcasting app.

Inside Procurement

The Smart Cube is a global provider of research and analytics solutions, primarily serving the CPG, financial services, retail, life sciences, energy and industrials sectors.

Addressing the needs of businesses in the intelligence age, our customised solutions provide a truly connected approach, delivered by talented minds and strengthened by Amplifi, our organisational intelligence platform, rich with knowledge, cutting edge tools and advanced analytics.

We work with more than a third of companies in the FTSE 100 and a significant number of the Fortune 100, helping them make smarter decisions, accelerate value and gain a competitive edge.

Headquartered in the UK with additional offices in the USA, Switzerland, Romania and India.

Intelligence. Accelerated

thesmartcube.com

United KingdomNo 1. Farriers Yard77 Fulham Palace RoadLondon W6 8JAUnited Kingdom

United States33 N. DearbornSuite 805Chicago IL 60602USA

SwitzerlandKornhausstrasse 3CH-9000 St. GallenSwitzerland

RomaniaFloor 5, Entrance B,2 Martin Luther Street,Timisoara, 300054Romania

IndiaTower B, Windsor IT Park, A1, Sector 125Noida, 201301India

[email protected]

Documents

WHITE PAPER Taking procurement digital - …...thesmartcube.com WHITE PAPER A practical guide to implementing a digital-forward procurement strategy Taking procurement digital A key